By TEE LIN SAY and EUGENE MAHALINGAM
KUALA LUMPUR: Contraband cigarettes have become a major problem in Malaysia because of high cigarette prices, low penalties and lax enforcement. The Government is losing approximately RM1.5 billion (S$617 million) in revenue annually, disclosed industry players.
Furthermore, the illegal market has spawned a major industry which gives syndicates operating smuggling networks up to RM1bil in profits yearly. It also defeats the Government's move to raise prices to discourage smoking among the young.
A Star Probe shows that illegal cigarettes are quite easily obtained at outlets in Malaysia. Most of those who smoke them appear to come from the lower income bracket as these cigarettes are available for as low as RM2.50 for a pack of 20. Legitimate cigarettes retail for between RM6.40 and RM9.30 for a pack of 20.
The illicit market now accounts for more than one out of three cigarettes sold. Some 38.7% of the industry by volume is now illicit, up from 27.5% in 2008, according to The Illicit Cigarette Study conducted by Taylor Nelson Soffres commissioned by a major cigarette manufacturer.
This means that out of the 23.3 billion cigarettes consumed in 2009, approximately nine billion sticks were illicit. The legal market has also shrunk by 10% compared with 2008 to an estimated 13.8 billion.
In the region, Malaysia is one of the countries with the highest taxes for cigarettes after Singapore. Illicit syndicates are taking advantage of this and making a cool RM1bil a year from the Government's stance to stamp out smoking.
Industry observers said the huge demand for exceptionally low-priced cigarettes was largely due to high taxes imposed by the Government over the last few years, as well as the minimal punishment for offenders and easy accessibility of illicit cigarettes.
"Excessively high taxation is a major contributor to the rise in the trade of illicit cigarettes in Malaysia," said JT International Bhd director of corporate affairs and communications Shareen Rahmat.
She added that this was compounded by insufficient deterrence - penalties meted out for the sale and consumption of illicit cigarettes were very minimal in Malaysia.
"As this trade is so profitable, smugglers are willing to risk being caught just to get a share of the pie.
"Present enforcement is just not strict enough to deter the smugglers," said British American Tobacco Malaysia Bhd (BAT) finance director Steve Rush.
BAT head of business development Azlan Ibrahim added that most of the smuggling was from neighbouring countries such as Thailand, Indonesia, Cambodia and China.